FROM OUR MANAGING PARTNERSummer 2016 Newsletter

STEPHEN L. GOLAN

Managing Partner

FROM OUR MANAGING PARTNERSummer 2016 Newsletter

While many try to take advantage of summer for family outings and vacations, the world of law continues to evolve and become more complex. In this issue of our newsletter, we share advice and information in these important areas:

The recently-enacted Defend Trade Secrets Act provides recognition of trade secrets as valuable intellectual property. We provide a summary of what you should know about the DTSA.

This newsletter also includes information on recent developments in Employment Law, plus we proudly feature our attorneys who were recognized as Leading Lawyers and Emerging Lawyers.

If you have any questions about what you read or want to learn more, please contact us anytime. We look forward to assisting you.

Stephen L. Golan

THRIVING IN A FAMILY BUSINESSIt’s Not Just Business, It’s Family.

BRIANNA L. GOLAN

Associate

"A close-knit family may find itself in unintended or unfavorable consequences for all."

THRIVING IN A FAMILY BUSINESSIt’s Not Just Business, It’s Family.

By Matthew P. Bachochin and Brianna L. Golan

It is hard enough to run any business, but family businesses are uniquely challenging. Everyone knows how complicated family relationships are and anyone who has sat at a Thanksgiving table has seen those complications play out in the most awkward ways possible. Now imagine that the livelihoods of everyone at that table, including the livelihoods of future generations, and, in most cases, the family legacy, hinge on that crowd making sound business decisions.

As two people who have worked (or are still working) for our family businesses, we get it. We have experience not only counseling clients in family business but also personal experience working for family, and personal experience about making the decision to stop working for family.

Clients operating family businesses (and closely-held businesses, for that matter) tell us that this “insider’s perspective” coupled with our firm’s extensive business and legal experience benefits not only the current business, but the next generation’s business. Here are some tips about surviving and thriving in family businesses.

Document Everything

It’s not insulting, it’s prudent (and complimentary, really) to insist that the nature of the business relationship – which is separate and distinct from any family relationship – is clearly defined. Documentation must be done at the beginning when everyone is working together and playing nice. Otherwise, a close-knit family may find itself at the mercy of the Business Corporations Act or similar statute that may result in unintended or unfavorable consequences for all. Moreover, if litigation should occur, the fight may be over what “oral contracts” or other agreements exist. This pits father against son, or sister against sister. That is not good for business, not good for family, and just ugly.

Plan for the Future

The entire business can collapse if the owners cannot effectively work together across multiple generations. All family businesses must have a plan that provides a smooth transition to the next generation, provides security and comfort to the current generation, allows for future growth of the company, and maintains some amount of family harmony. Communication is key. If Mom won’t share key aspects of the business, Daughter is going to be at a loss once Mom hands over the reins.

Remember That It’s Personal, but Never Forget That It’s Business.

Too many conflicts in family businesses are driven by emotion. Family members often fail to consider the consequences of the way they treat each other in the business or else allow personal matters to affect how they treat each other at work. Separation between business “business” and personal “business” can be hard. It may feel personal, but it’s also about the business.

Have an Organization Chart or Plan

Like any business, a family business must have defined roles for both family and outsiders. The business should include at least one non-family member in a key management role. Success and advancement in the family business must be based on defined goals, not based on nepotism.

Require Employment Outside the Family Business First

Maybe the plan from the beginning is to have Junior join the family business. However, if Junior’s only work experience is in the family business, it could be not only a disservice to Junior, but to the business itself. Working outside the family business first will provide the next generation with a broader perspective, allowing him or her to bring in fresh ideas.

Get Good, Outside, Independent Advice

Every business needs honest, unemotional, and objective advice. This is even more true when the majority of decision-makers are related to each other. Even if family members are trained professionals – lawyers, accountants, etc. – it is vital that all family businesses find outside advisors whom they trust to seek their opinion and guidance. You (and the generations to come) will not regret it.

The proliferation of digital assets raises new questions about how to plan for the transfer of those assets. Law typically trails technology, and in the case of digital assets, the law is woefully behind. In Illinois, for example, there is no law opining on the transfer of digital assets, which are governed by complex “Terms of Service Agreements” that nobody reads. Thus, the question exists: what happens with my digital assets when I die?

What is a “Digital Asset?”

Proposed Illinois legislation defines a “digital asset” as:

An electronic record in which an individual has a right or interest, not including the underlying asset or liability unless the asset or liability is itself a record that is electronic. All digital assets, however defined, are accessed by a tangible device, such as a computer, smartphone, tablet, or server.

Practically speaking, digital assets are email accounts, social media accounts, digital files, digital currency, music, apps, and other electronically-stored records. Digital assets such as websites, music, code, or digital currency can have tangible, monetary value, while other digital assets, such as social media accounts, may have more personal value. For example, Pokemon Go added over $7 billion to Nintendo’s market capitalization almost overnight, and there is currently over $10 billion of bitcoin outstanding.

Creation of the UFADAA

The issue with planning for digital assets is two-fold: terms of service agreements typically prevent the account holder from transferring or allowing additional access to the underlying account, and federal law criminalizes the unauthorized access of digital material. Terms of service agreements (TOSAs) are the long, mundane text boxes that are “agreed” to anytime a user sets up an online account. TOSAs almost uniformly prevent access by anyone other than the user, and also prevent the transfer of the underlying digital asset.

For example, Facebook does not allow you to share your password or “let anyone else access your account” or “transfer your account.” While in a practical sense the prohibition may seem unenforceable, the Federal Computer Fraud Use and Abuse Act criminalizes “unauthorized access” of computer hardware and stored data. Further, the Federal Stored Communications Act prevents disclosure of the content of electronic communications to third parties.

In response, a uniform law was drafted, the Uniform Fiduciary Access to Digital Assets Act (UFADAA). UFADAA aims to circumvent the prohibition on transfers and difficulty in account access by providing that fiduciaries (e.g. trustee, guardian, executor) may access the accounts of the principal. For example, the principal under a power of attorney must expressly state in the power that the agent shall have access to all digital assets, including the content of the digital asset. If, on the other hand, the account holder is incapacitated or deceased and does not provide affirmative approval for fiduciary access, UFADAA provides that the fiduciary will only have access to a “catalogue” of the digital assets, meaning that the fiduciary will know of the asset’s existence, but will not be allowed access to the content.

UFADAA provides a three-tiered approach to determine access. The highest level of access is an “online tool.” An “online tool” is an express grant of authority that exists within the digital asset itself. For example, Facebook allows for a “legacy contact,” whom the primary account holder appoints to access their account to download content (i.e. pictures) and close the account, if necessary. In the absence of an online tool, the second level of authority is the grant of authority under estate planning documents. The grant of authority under the documents would circumvent a TOSA prohibition on account access or transfer. The third level of authority is the default level, discussed above, in which the fiduciary only has access to a catalogue of digital assets.

Status of UFADAA in Illinois

Illinois has yet to adopt UFADAA. The bill, which has bi-partisan support, was approved by the Illinois Senate and was sent to the House floor for approval, but was sent back to committee on

May 31, 2016. It is generally expected that the House will eventually pass the bill and that the governor will sign UFADAA into law. When adopted, UFADAA will be effective with regard to all existing estate planning documents. Thus, even before the bill is adopted, it is still necessary to account for digital assets in estate planning documents.

Planning for digital assets is a hot topic in the estate planning community. As the law currently stands, planning is difficult. It appears, however, that in the near future we may have additional guidance on how to plan for, and distribute, digital assets.

Although Illinois has yet to adopt UFADAA, it is still necessary to account for digital assets in estate planning documents.

Decided on May 26, 2016, the Seventh Circuit Court held that mandatory arbitration provisions which preclude collective arbitration or collection actions violate the National Labor Relations Act (“NLRA”) and are, therefore, unenforceable. The case, Lewis v. Epic Systems Corporation, No. 15-2997, 2016 WL 3029464 (7th Cir. May 26, 2016), deals a significant blow to employers who are concerned about frivolous class action litigation from employees. In Lewis, the employment agreement at issue required employees to “waive the right to participate in or receive money or any other relief from any class, collective, or representative proceeding” in connection with any wage-and-hour disputes, which the Court found violated the NLRA’s protection of concerted activity.

In connection with the Lewis decision, all employers should review their current employment agreements, as any arbitration provision drafted before May 2016 may be at risk of being unenforceable.

Chicago Passes Paid Sick Leave Ordinance

Chicago Passes Paid Sick Leave Ordinance

Chicago recently passed an Ordinance requiring all employers with employees working in Chicago to provide those employees with paid sick leave. Chicago is only the most recent city to have passed such an Ordinance, following twenty-six (26) other cities including New York City, Philadelphia, and Washington, D.C. In addition, five (5) states – California, Connecticut, Massachusetts, Oregon, and Vermont – have laws requiring employers to provide paid sick leave to employees.

The Chicago Ordinance goes into effect on July 1, 2017. Under the Ordinance, employees accrue one (1) hour of sick leave for every forty (40) hours worked, up to a total of five (5) days of sick leave over the course of the year. For any new employees, they can use accrued sick leave after six (6) months of employment. While employers are not required to pay employees for unused sick days at the end of the year or upon termination of employment, employees are able to roll over up to 2.5 days of unused sick leave to the following year.

The Chicago Ordinance does not affect any employer that already offers employees at least five (5) days of sick leave or PTO per year. If you have questions or need additional information, please contact an employment attorney at Golan & Christie.

Defend Trade Secrets Act (DTSA) Becomes Law

BEVERLY A. BERNEMAN

Partner

Defend Trade Secrets Act (DTSA) Becomes Law

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (“DTSA”) into law. The DTSA marks long-awaited federal recognition of trade secrets as valuable Intellectual Property. Here’s a summary of what you should know about it.

Trade Secrets Background

A trade secret is information that can be used in the operation of a business and is sufficiently valuable to give the business a competitive advantage. The business must take reasonable measures to keep the trade secret from being disclosed to the public.

Since the 1990s, many attorneys began to lobby Congress for the passage of a federal trade secret law. The product of their hard work is the DTSA.

A Tour of the DTSA

Employment Law Issues:

The DTSA includes provisions that address the employer/employee relationship. The law provides criminal and civil immunity for individuals who disclose trade secrets to government officials or attorneys for the purposes “of reporting or investigating a suspected violation of law.”

Employers must provide notice of this immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Compliance only requires a cross-reference to policy documents provided to the employee that sets forth the employer’s reporting policy for suspected violation of law.

One of the biggest changes is the limit on injunctive relief against employees if an injunction would prevent a person from entering into an employment relationship. A court may place restrictions on employment only if the former employer can show, through evidence, that the new employment “threatened misappropriation and not merely on the information the person knows.” At this time, there’s no indication whether an employer may use state trade secret law to avoid the effect of the DTSA on this point. However, state laws governing restrictive covenants are expressly preserved and still available.

Civil Litigation:

A plaintiff will now be able to seek remedies for trade secret misappropriation in federal court. All state law causes of action, including actions based upon a state’s trade secret law, are preserved.

A plaintiff may also seek a seizure order without notice in extraordinary circumstances. The party must show that the seizure is necessary to prevent the propagation or dissemination of a trade secret. This will give a plaintiff a valuable tool to stop the misappropriation of trade secrets on an expedited basis. However, the statute does not give much guidance as to what would constitute the “propagation” or “dissemination” of a trade secret.

A plaintiff may seek exemplary damages of two times the amount of damages and attorneys’ fees in cases of willful and malicious misappropriation.

Criminal Prosecution:

The DTSA also amended criminal procedure under the Economic Espionage Act. The penalties for violating the act are the greater of $5 million or three times the value of the stolen trade secret.

The criminal court may hear from the owner of the misappropriated trade secret regarding the need to protect their trade secrets. Theft of trade secrets is now a predicate act for criminal actions under Racketeering Influenced and Corrupt Organizations Act (RICO).

Conclusion

The DTSA ushers a new area into the protection of trade secrets. As a result, every business should reexamine its trade secrets inventory, measures of secrecy and employment documents.

This newsletter has been provided by Golan & Christie LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act without seeking professional advice. This newsletter may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome. Effective June 21, 2005, Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the newsletter contains written advice relating to a federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.

These exceptional lawyers have been nominated by their peers and approved by the Advisory Board. Leading Lawyers distinguishes the top five percent of statewide licensed lawyers.

In addition, these Golan & Christie attorneys have been named as Emerging Lawyers:

Laura Balson
Brianna Golan
Gillian Lindsay
Matthew Wasserman

Also nominated by Leading Lawyers, these exceptional lawyers – each are forty years old or younger, or have been practicing for less than ten years – demonstrate excellent aptitude and potential from the onset of their career. Emerging Lawyers distinguishes only the top two percent of statewide licensed lawyers.